Remuneration of Managing Board and Supervisory Board

Remuneration Managing Board in 2017

As part of its remuneration policy for the Managing Board, DSM benchmarks its remuneration package against the packages offered by the labor-market peer group once every three years.

Base salary in 2017

Adjustment of the base salary is at the discretion of the Supervisory Board. On 14 May 2017, it was decided to adjust the annual base salary of the CEO by 2.2% and for the other Managing Board members by 2.5% as of 1 July 2017.

Fixed annual salary

in €

1 July 2017

1 July 2016

­

Feike Sijbesma

920,000

900,000

Geraldine Matchett

605,000

590,000

Stephan Tanda1

-

590,000

Dimitri de Vreeze

605,000

590,000

1 Left DSM to pursue his career outside of the company as of 1 February 2017.

Short-Term Incentives (STI) for 2017

STI targets are revised annually so as to ensure that they are stretching but realistic. Considerations regarding the performance targets are influenced by the operational and strategic course taken by the company and are directly linked to the company's ambitions. The targets are determined at the beginning of the year for each Board member.

Target STI level and pay-out

When they achieve all their targets, Managing Board members receive an incentive of 50% of their annual base salary. Outstanding performance can increase the STI level to 100% of the annual base salary.

The 2017 Integrated Annual Report presents the Short-Term Incentives that have been earned on the basis of results achieved in 2017. These Short-Term Incentives will be paid out in 2018.

The Supervisory Board has established the extent to which the targets for 2017 were achieved and has used their discretionary power to adjust achievements resulting in partially higher pay-out, including impact on ROCE. Regarding the financial targets, the score on the EBITDA target was overachieved, while the score on gross free cash flow was on target. The score for net sales growth was at maximum achievement. For the sustainability targets, the score on Brighter Living Solutions was on target, and the score on the Employee Engagement Index was overachieved. The Safety Performance score was below threshold. Managing Board members also have individual targets. The scores achieved on these targets were at maximum achievement. The realization of the 2017 financial STI targets has been assessed by KPMG. Furthermore, KPMG has assessed the process with respect to the target realization of the non-financial STI targets. The realization percentage was 75% of base salary. The realization percentage in 2017 was 75% of base salary versus 73.5-82.5% on average over 2016.

With the STI Deferral and Share Matching Plan, only part of the STI outcome is paid in cash. 25% of the gross STI value is mandatorily converted into DSM Investment shares. Managing Board members can choose to convert up to a further 25% into additional DSM Investment shares (in 5% increments, with a minimum of 5% and a maximum of 25%).

The company matches these STI Investment shares with an equivalent number of Restricted Share Units (RSUs), vesting of which is deferred for three years, conditional on achieving predefined performance targets equivalent to the measures under the Long-Term Incentive (LTI) Plan. The remainder of the STI gross outcome (50% to maximum 75%) is paid out in cash.

Short-Term Incentives

in €

20171

20162

Feike Sijbesma

682,500

742,500

Geraldine Matchett

448,125

457,250

Stephan Tanda 3

-

433,650

Dimitri de Vreeze

448,125

457,250

1 Based on results achieved in 2017 and therefore payable in 2018.

2 Based on results achieved in 2016 and therefore paid in 2017.

3 Left DSM to pursue his career outside of the company as of 1 February 2017.

All members of the Managing Board decided to invest the maximum of 50% of their gross 2016 STI (payable in 2017) in accordance with the STI Deferral and Share Matching Plan. In all cases, these investment shares were matched with an equal number of Restricted Share Units (RSUs). This was also the case with regard to the gross 2017 STI (which will be paid in 2018).

Long-Term Incentives (LTI)

The following table provides an overview of the LTI performance shares that were granted to members of the Managing Board in the respective year. These performance shares are subject to a three-year vesting period.

Number of LTI performance shares granted1

2017

2016

Feike Sijbesma

23,500

31,000

Geraldine Matchett

15,500

20,500

Stephan Tanda2

-

20,500

Dimitri de Vreeze

15,500

20,500

1 Grant according to Koninklijke DSM N.V. Performance Share Plan.

2 Left DSM to pursue his career outside of the company as of 1 February 2017.

For 2018, the number of conditionally granted ordinary shares under the LTI program will be:

In 2017, the Supervisory Board established which proportion of the shares conditionally granted in 2014, vested. The following four performance measures are applicable to the 2014 grant: relative Total Shareholder Return (TSR) versus a peer group, Return on Capital Employed (ROCE), Energy Efficiency Improvement (EEI) and the Greenhouse-gas Emissions (GHGE) reduction over volume-related revenue. Each of these measures determines 25% of the total vesting percentage. The applicable vesting schemes for the three-year vesting period starting in 2014 were published in DSM's 2014 Integrated Annual Report. DSM's TSR performance minus the peer group performance over the vesting period did not result in the vesting of any shares, while the performance in terms of GHGE reduction led to full vesting on this measure. Overall this resulted in the vesting of 50% of the total amount of shares granted in 2014.

Pensions in 2017

The members of the Managing Board participate in the Dutch pension fund Stichting Pensioenfonds DSM Nederland (PDN). This pension scheme for the Managing Board is equal to the pension scheme for other DSM employees in the Netherlands. The current pension plan for DSM in the Netherlands came into effect in 2011. As of 1 January 2015, the Dutch tax treatment of pension contributions changed resulting in a change to the DSM pension plan. As a consequence, DSM offers two non-qualifying individual defined contribution plans to employees whose pensionable salary exceeds €103,317 (2017 ceiling) per annum, including the Managing Board.

Based on career-average base pay. Pensionable salary equals base salary up to a maximum of (in 2017) €103,317 per annum considering a deductible of €13,592 (in 2017 subject to annual review). Accrual of 1.875% per annum.

Retirement age 67 (as of 2016).

The scheme includes a spouses'- and disability pension.

Employee and employer contributions.

B. Allowance for salary exceeding €103,317­

Employees whose pensionable salary exceeds €103,317 receive an age-dependent gross allowance that can be used to participate in a net pension scheme. The allowance is taxed.

Revision and claw-back of bonuses

As in 2016, no revision or claw-back of bonuses occurred in 2017.

Remuneration Managing Board and Executive Committee

The remuneration of the members of the Managing Board is determined by the Supervisory Board within the framework of the remuneration policy as approved by the Annual General Meeting of Shareholders. More details about see Remuneration policy for the Managing Board as included in the 'Report by the Supervisory Board'.

Since 2015, DSM has had an Executive Committee, enabling faster strategic alignment and operational execution by increasing focus on the development of the business, innovation and people. The members of the Executive Committee in 2017 are the Managing Board members Feike Sijbesma (CEO/Chairman), Geraldine Matchett (CFO) and Dimitri de Vreeze (Materials), as well as Chris Goppelsroeder (Nutritional Products), Philip Eykerman (Strategy and M&A), Rob van Leen (R&D and Innovation) and Peter Vrijsen (People & Organization), who was succeeded by Judith Wiese on 1 January 2018. The members of the Executive Committee meet the definition of key management personnel.

The total remuneration and related costs (including pension expenditures, other commitments, short- and long-term incentives) of the current members of the Managing Board amounted to €5.5 million (2016: €10.0 million).

The total remuneration and related costs (including pension expenditures, other commitments, short-term and long-term incentives) of the other members of the Executive Committee amounted to €5.5 million in 2017 (2016: €5.7 million).

The cost of the remuneration of the individual members of the Managing Board and of the other members of the Executive Committee collectively was as follows:

DSM's remuneration expense for the Managing Board and the Executive Committee (the reported costs for DSM, according to IFRS definitions, are not in all cases the compensation paid, nor the cash outflows for DSM)

x € thousand

Salary

Short-term incentive

Pension expenditure1

Share-based2 compensation

Other items3

Total

2017

2016

2017

2016

20174

20165

2017

2016

2017

2016

2017

20165

Feike Sijbesma

910

900

683

743

214

206

850

811

50

50

2,707

2,710

Geraldine Matchett

598

590

448

457

101

87

634

445

74

77

1,855

1,656

Stephan Tanda6

49

590

-

434

9

116

(895)

531

1

111

(836)

1,782

Dimitri de Vreeze

598

590

448

457

112

100

552

496

39

40

1,749

1,683

Total Managing Board

2,155

2,670

1,579

2,091

436

509

1,141

2,283

164

278

5,475

7,831

Other members of the Executive Committee

1,995

1,950

1,497

1,489

432

408

1,271

1,255

298

615

5,493

5,717

Total Executive Committee

4,150

4,620

3,076

3,580

868

917

2,412

3,538

462

893

10,968

13,548

1 The employers' pension expenditure increased due to an adjustment of the employer/employee ratio, not impacting the overall contribution to the net pension scheme.

2 Share-based compensation expense represents the non-cash cost for DSM of performance shares awarded to members of the Managing Board and stock options to other members of the Executive Committee. These costs are recognized over the vesting period of the performance shares and stock options and therefore cover several years. The percentage of vesting of shares and options will determine the final income for the Managing Board and Executive Committee members.

3 Other items include company car and allowances.

4 The pension expenditure contains an age-dependent contribution for the salary exceeding €103,317. For employees with a higher age, a higher contribution level is applicable.

5 In 2016, this amount included a one-time additional pension contribution of €2.2 million, bringing the total 2016 pension expenditure to €2,709 thousand and the total remuneration of the CEO to €4,910 thousand. For the entire Managing Board the total remuneration for 2016 was €10,031 thousand.

6 Left DSM to pursue his career outside of the company as of 1 February 2017. The cumulative expense of the share-based compensation previously recognized for not yet vested performance shares has been reversed in 2017.

Pay ratio

Under the new Dutch Corporate Governance Code companies are required to publish a pay ratio. As the code does not provide a definition of the pay ratio, the calculation method applied will vary per company, which will make the pay ratio data incomparable. The pay ratio per company will also differ year on year, since the variable pay (as a percentage of annual base salary) of the CEO/Managing Board is typically much higher (100% at target) than the variable pay of the comparable average employee group (about 5-10% of annual base pay), and this variable pay will fluctuate with business results. On top of that, different regions of the world have different pay structures, so acquisitions/divestments will equally influence the pay ratio. DSM complies with the governance code in providing a pay ratio, using the following calculation method, as measured per 31 December 2017. The ratio of total remuneration of the CEO, including annual base salary, short-term incentives, long-term incentives and other benefits such as pension (as reported in this annual report) versus the average of total global employee (i.e. including Dutch) remuneration (after deduction of total remuneration of the CEO) is 32:1.

Furthermore, the pay ratio of the full Managing Board total remuneration average versus the average of total global employee remuneration (after deduction of total remuneration of the Managing Board) is 25:1. In case the ratio is calculated versus the Dutch employee remuneration average, the ratios will be 20:1 (compared to CEO remuneration) or 16:1 (compared to average Managing Board remuneration). This is based on total NL cost of EUR 522 million (which includes the remuneration of the Managing Board and has been deducted in the ratio calculation) and a head count in the Netherlands of 3,831 as per 31 December 2017.

Outstanding and exercised stock incentives

The following table shows the stock incentives of the individual members of the Managing Board and the rights exercised.

Overview of stock options

Year of issue

Outstanding at 31 Dec. 2016

In 2017

Outstanding at 31 Dec. 20171

Average share price at exercise (€)

Exercise price (€)

Expiry date

Granted

Exercised

Forfeited/expired

Dimitri de Vreeze

2010

18,000

-

-

-

18,000

33.10

6 Apr 2018

2011

18,000

-

-

-

18,000

46.20

2 May 2019

2012

12,000

-

-

-

12,000

40.90

15 May2020

2013

12,000

-

-

-

12,000

48.91

7 May 2021

Total

60,000

-

-

-

60,000

Of which vested

60,000

60,000

1 The other members of the Managing Board do not hold any stock options.

Since 2010, the Managing Board has been granted LTI performance shares instead of stock options.

Overview of performance shares

Year of issue

Outstanding at 31 Dec. 2016

In 2017

Outstanding at 31 Dec. 2017

Share price at date of grant (€)

Granted

Vested

Forfeited / expired

Feike Sijbesma

2014

28,822

-

(14,411)

(14,411)

-

49.88

2015

32,051

-

-

-

32,051

52.58

2016

36,350

-

-

-

36,350

48.79

2017

-

29,333

-

-

29,333

63.65

Total

97,223

29,333

(14,411)

(14,411)

97,734

Retained shares originated from performance shares

81,035

Geraldine Matchett

2015

27,008

-

-

-

27,008

52.58

2016

24,006

-

-

-

24,006

48.79

2017

-

19,092

-

-

19,092

63.65

Total

51,014

19,092

-

-

70,106

Retained shares originated from performance shares

-

Stephan Tanda

2014

18,990

-

-

(18,990)

-

49.88

2015

20,511

-

-

(20,511)

-

52.58

2016

24,064

-

-

(24,064)

-

48.79

Total

63,565

-

-

(63,565)

-

Retained shares originated from performance shares

n.a.

Dimitri de Vreeze

2014

16,910

-

(8,455)

(8,455)

-

49.88

2015

20,836

-

-

20,836

52.58

2016

24,005

-

-

-

24,005

48.79

2017

-

19,092

-

-

19,092

63.65

Total

61,751

19,092

(8,455)

(8,455)

63,933

Retained shares originated from performance shares

4,431

Other members Executive committee

2016

53,616

-

-

-

53,616

48.79

2017

-

45,577

-

-

45,577

63.65

Total

53,616

45,577

-

-

99,193

Retained shares originated from performance shares

-

Purchasing shares

In addition to the performance shares granted under the DSM Stock Incentive Plan, the current members of the Managing Board have themselves invested in DSM shares.

All members of the Managing Board have purchased shares in the company to emphasize their confidence in the strategy and the company. At 31 December 2017, the members of the Managing Board together held 174,734 (2016: 198,290) shares in Koninklijke DSM N.V. These shares were bought through private transactions with private funds (including shares bought from earned STI) and obtained through vested performance shares.

Managing Board holdings of DSM shares

31 December 2017

31 December 2016

Ordinary shares purchased with private money

Holdings from vested performance shares

Total holdings

Ordinary shares purchased with private money

Holdings from vested performance shares

Total holdings

Feike Sijbesma

64,209

81,035

145,244

58,376

66,624

125,000

Geraldine Matchett

7,976

-

7,976

4,384

-

4,384

Stephan Tanda

-

-

-

18,065

37,350

55,415

Dimitri de Vreeze

17,083

4,431

21,514

13,491

-

13,491

Total holdings

89,268

85,466

174,734

94,316

103,974

198,290

Loans

The company does not provide any loans to members of the Managing Board.

Supervisory Board remuneration in 2017

The remuneration package for the Supervisory Board comprises an annual fixed fee and an annual committee membership fee. In addition, Supervisory Board members receive an intercontinental travel allowance for each meeting that they attend outside their continent of residence of €4,000 (2016: €4,000).

The fixed fee per appointed year for the Chair of the Supervisory Board is €85,000 (2016: €85,000). The other members of the Supervisory Board each receive a fixed fee of €60,000 (2016: €60,000). Audit Committee membership is awarded €10,000 (2016: €10,000) per member and €15,000 (2016: €15,000) for the Chair. Nomination Committee, Remuneration Committee and Sustainability Committee membership is awarded €7,000 (2016: €7,000) per member and €10,000 (2016: €10,000) for the Chair.

Overview of remuneration awarded to the Supervisory Board in 2017

The total remuneration (annual fixed fee, annual committee membership fee and other costs such as the intercontinental travel allowance) of the members of the Supervisory Board amounted to €0.7 million (2016: €0.6 million).

The remuneration of the individual members of the Supervisory Board was as follows: